Borrowers should brace for another interest rate hike

Next week is certainly set to see another interest rate (repo) hike by the Reserve Bank of India (RBI), as India's central bank battles very high inflation levels.

It's certainly good news for retired folk, who might see higher interest rates on deposits, while it's not so good news for borrowers.

Home loans on EMIs are likely to go up, while other loans might also become costlier.

The Reserve Bank of India officials will meet on December 18 to consider a repo rate hike or rates at which banks borrow money from the RBI.

A hike in the rates means that banks could also hike their deposit and lending rates.

The one and only one consideration that the RBI has made clear that it has in the near term is to battle inflation.

The CPI inflation came in at a staggering 11.24 per cent for the month of October, which surprised economists and analysts.

"As far as the inflation goes we are uncomfortable with the current levels. I have said that earlier when inflation was 10.09 and also now when it is past 11," RBI Governor Raghuram Rajan told reporters during the press conference held after the central board meeting on Thursday.

But, this could come at the cost of growth which has hit sub five per cent for the last few quarters. But, the RBI ‘s focus would continue to remain more on inflation and less on growth.

Clearly, the next strategy for depositors should be to wait for a few weeks as they may get better rates for their deposits. On the other hand borrowers like those for floating home loans, might see their EMIs going up. It's not the best time to borrow and unless you are compelled to, you can avoid doing so.